Holly Frontier

Refiners operating in the Permian Basin enjoyed healthy margins over the past four years as takeaway pipeline congestion discounted the price of local crude compared to market centers at Cushing, OK or the Gulf Coast. Although that trend reversed for a few months this summer when a shortage of crude at Midland caused prices to spike higher, the market is once again favoring local purchasers. As a result, refiners have invested in infrastructure to increase deliveries of local crude to their refineries as well as leveraging their gathering pipelines to double as takeaway routes for producers shipping outside the basin.  Today we continue our review of Permian infrastructure build out.

Refineries in the Rocky Mountains region, defined by the Energy Information Administration (EIA) EIA as Petroleum Administration for Defense District (PADD) IV, are smaller and less complex than they are in the rest of the U.S. The region is landlocked and the 16 refineries – average size only 42 Mb/d - rely on U.S. light sweet crude produced locally or in North Dakota as well as Western Canadian heavy crude. The combination of rich supplies of crude and increased demand for refined products such as diesel means that refinery margins are high. These healthy economics are encouraging refinery expansions. Today we examine these plans.

Permian crude production is headed to 1.7 MMb/d by the end of 2014. Current hot spots include the Delaware Basin in Northwest Texas and Southeast New Mexico. Two refiners with plants in West Texas and New Mexico are expanding their crude gathering systems to increase local crude processing. They are also looking to increase their toll revenue from crude flows out of the Delaware. Today we look at expanded refinery gathering systems in the Delaware Basin.